NOTE CONTENTS INTRODUCTION I. LAW AND THE THEORY OF INCENTIVES A. An Economic Approach to Human Behavior B. The Law as an Engine for Incentives II. THE CROWDING OUT EFFECT: THEORY & EVIDENCE A. When Incentives Do the Work of Intrinsic Motivation: Crowding Out Theory B. Evidence for the Crowding Out Effect C. The Traditional View of Why Crowding Out Is a Problem: Intrinsic Motives as Mere Means III. WHY THE CHARACTER OF OUR MOTIVATIONS MATTERS: REFRAMING THE CROWDING OUT EFFECT A. Grounds for Distinguishing Motivations B. Motives, Self-Definition, and Orienting Oneself Towards the Good C. How Motives Enable Valued Ways of Relating with Others D. An Incentive's Effect on the Motives We Care About IV. IMPLICATIONS FOR LAW AND REGULATORY DESIGN A. The Law of Nature Restriction on Patentable Subject Matter B. The Unenforceability of Donative Promises that Have Not Been Relied Upon C. The Declining Popularity of Heart-Balm Laws D. Rules Versus Standards E. Uncharted Waters: Moral Edification Through the Crowding Out Effect CONCLUSION

INTRODUCTION

Capacity for the nobler feelings is in most natures a very tender plant, easily killed, not only by hostile influences, but by mere want of sustenance.... Men lose their high aspirations as they lose their intellectual tastes, because they have not time or opportunity for indulging them; and they addict themselves to inferior pleasures, not because they deliberately prefer them, but because they are either the only ones to which they have access or the only ones which they are any longer capable of enjoying.

--John Stuart Mill (1)

A powerful principle underlies much contemporary legal analysis and regulatory design. The principle is that of the "incentive"--an extrinsic prompt that induces agents to act in ways they might not otherwise by altering the expected consequences of their actions. Often taking the form of financial reward or punitive sanction, incentives do their work by raising the costs of socially undesirable behavior or the benefits of socially desirable behavior. Incentives thus compensate for the inadequacy of individuals' natural motivations to behave in socially desirable ways and, unsurprisingly, pervade contractual rules, tort duties of care, tax regulations, and virtually all other areas of the law.

Despite the widely acknowledged benefits of generating incentives for good behavior through the law, scholars have raised concerns about their pervasive use. (2) One category of concern stems from the unintended costs of motivating individuals by way of extrinsic prompts. A substantial body of empirical research has shown that in many contexts individuals lose their natural or "intrinsic" motivations for engaging in an activity when they are successfully induced to participate in it for extrinsic reasons, like monetary reward or fear of sanction. (3) Motivation grounded in a sense of civic duty, or a commitment to self-improvement, or moral concern, appears undermined in the presence of monetary and sanction-based incentives. Extrinsic motivation is said to "crowd out" intrinsic motivation, and the phenomenon is commonly referred to as the "crowding out effect." (4)

In this Note, I explore a normative dimension to the crowding out effect that has been neglected by previous scholarship. The crowding out effect, as traditionally conceived, portrays legal incentives as potentially counterproductive; the net decline in intrinsic motivation often makes agents less likely to engage in the activity regulators hoped to incentivize. (5) One might say that the traditional conception of the phenomenon renders an internal critique of legal incentives, one that questions whether incentives adequately satisfy their purpose. There is a different way of regarding the crowding out phenomenon, one that suggests an external critique of incentivizing, and it is this alternative that I hope to develop in what follows. …

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